Meta

Day: October 7, 2011

Reflecting on the Occupy Wall Street Protests and the we are the 99% campaign, Matt Yglesias thinks that the top 10% of American’s represent a more salient target that the top 1%. The top 10% of Americans have certainly done well in the last 30 years of America’s age of inequality but I think it would be wrong to specifically target them.

Not only for ease of capturing a universalist rhetoric, but because the top 10% of wage earners aren’t necessarily incredibly wealthy. Here’s the chart Matt uses from Menzie Chinn’s Lost Decades charts:

The top 10% have certainly done significantly better than the bottom half of the income scale, but they haven’t reached anything like the dizzy heights of the top 1%. Inequality at the top is even more steep that inequality in the bottom 90%. Look at this graph from The New York Times to see what I mean.

I think it is easy to confuse income and wealth. Someone can be wealthy and not earn very much, and they can be poor and have just landed a lucrative job. In large part this is a wash, wealthy people tend to earn a lot and people who are not wealthy tend to earn meagre wages.

Social mobility is definitely stunted, both in the US and here in the UK, but people do tend to earn more the wealthier they are. So targeting the top 10% isn’t just about hitting the rich, it is also about hitting normal people in the 50s who have merely reached the top of their game.

When discussing who to campaign against you have to take into account part of a person’s identity will be defined by how much they earn over their lifetime, not how much they are earning at a particular moment.

So on one level it makes sense to target the wealthy top 10%, but not if it means taxing someone approaching retirement who will only earn that sort of wage for a few years. So that is why targeting the top 10% will fall down rhetorically, because a lot of those who will be targeted will be normal working class people who have just reached the top of their career ladder, a few years before stepping off.

The top 1% are less likely to be your average worker done well and are more likely to be plutocrats, financiers and those who have poisoned modern politics. That is where your red meat for riling protesters lies. Don’t target a District Manager for a Marks and Spencers, target Fred Goodwin and his flying chimp lackeys.

A lot of people get very worried by printing money. We can trace this line of thought back to the great political economists of the nineteenth century like JS Mill, but it finds itself common on the leftandright these days.

You can print yourself into hyperinflation, or even accelerating inflation which can eat into living standards and cloud relative prices. But you can find yourself in deflation by failing to print enough. It is this second problem we have been closer to.

It is sad that people need reminding that hyperinflation impoverished Germany but it was relatively mild reflation which pushed them towards fascism. It seems sensible to me to fear deflation more than inflation. Better yet to find the happy medium, where the economy operates at its potential without prices rising too quickly or people being left on the scrap heap of unemployment.

Unfortunately I don’t know where to get the data for the UK, the UK National Statistics website is a joke, but here is some data for the US showing the potential for disconnect between money and prices.

For two decades, money increases along with economic activity, prices increase more slowly (i.e. we got richer). We reach 2008 and the monetary base explodes but prices do not. In fact, prices fall slightly just as the monetary base grows at over 100% a year.

What does this tell us? It tells us that simplistic talk about “fake credit”, “titanic disasters” or “defy[ing] economic gravity” is very wide of the mark indeed.

Quantitative Easing causes a lot of confusion. Normally a central bank promises to print as much money as is necessary to pin short term interest rates at a level predicted to produce stable prices and full output.

Around the world, our last crisis was so severe that short term interest rates went to zero and stayed there. The central bank’s method for controlling prices and output was suddenly impotent.

QE is an extension of this normal promise to print and spend to long term debt because rates on short term debt have already been pushed as low as it is possible to go.

QE is far from ideal, in fact it is the least a central bank can do once rates hit zero. But it is the only option currently on the table because many people currently resist a central bank even doing this minimum because they seem not to care about unemployment.

If you support more active policy to help people then it has to be both through QE and after QE. Only by supporting a suboptimal policy will the space ever open up for something more efficient for boosting growth but that is less popular with central banking’s elite.